Insights from Fidelity's portfolio managers

Think the internet has killed TV? Think again

Sean Gavin – November 20, 2018

"The growth of new media companies Netflix and Amazon.com has beaten down the share prices of some 'old media' stocks, creating attractive investment opportunities in certain traditional media names that have fallen out of favor," says Sean Gavin, portfolio manager of Fidelity^® Blue Chip Value Fund (FBCVX).

Many of the traditional mass media companies face challenges from new competitors, but only a few big publicly traded names are in a state of perpetual decline, says Gavin.

"Moreover, Netflix and Amazon are still a tiny portion of the overall media market, despite their rapid growth," he says.

Gavin believes the claim that no one watches TV any longer is a myth. To the contrary, he points out, it's still extremely popular among those who watch sports, and an older demographic that watches specific cable content.

Gavin says many "old media" companies with ties to TV still have strong opportunities to monetize a vast subscriber base. In the interim, many are producing strong cash flows.

For this reason, Gavin says, he added to the fund's media holdings overall in the 6 months ending September 30. As of this date, the fund had overweighted positions in both Comcast and Disney.

"In my view, each is a very well-known, traditional media asset that I bought at what I think is a low valuation, mostly because they're out of favor," he says.

Learn more about this manager and his fund
Sean Gavin manages Fidelity^® Blue Chip Value Fund, which held the securities mentioned in this article on September 30, 2018. As of the end of the third quarter, the fund did not own either Netflix or Amazon. Comcast represented 4.01% of fund assets as of September 30, and Disney composed 2.78% of fund assets.

Investing in the "digital revolution"

Charlie Chai – November 14, 2018

"Businesses in all industries must use data more strategically ... or be left behind," says Charlie Chai, lead portfolio manager of Fidelity^® Select Technology Portfolio (FSPTX), explaining why the fund has been heavily invested in data-mining software firms.

Software companies, many of which are at the heart of such data mining, represented about 38% of the fund as of September 30, more than any other category, Chai notes, up from roughly 18% at the start of 2018.

The fund holds an overweighted position in cloud-computing enterprise software provider Salesforce.com as of the end of September, according to Chai. He says the company's Einstein Analytics platform provides customers with sales and marketing insights, utilizing both internal and external data sources.

Microsoft was by far the fund's largest holding at the end of September, as Chai says its Azure cloud services help customers with functions such as demand forecasting and inventory optimization.

Even HR is moving in a data-driven direction, Chai says. For this reason, the fund has overweighted Ultimate Software Group, which makes cloud-based software that helps mid-sized companies modernize benefits management, onboarding, and similar functions.

"I think these all are examples of software firms that help customers become meaningfully more efficient, and they're part of what I think is an enduring trend," Chai says.

Learn more about this manager and his fund
Charlie Chai manages Fidelity^® Select Technology Portfolio, which held securities mentioned in this article on September 30, 2018. As of the end of the third quarter, Salesforce.com represented 4.06% of fund assets; Microsoft composed 14.27% of fund assets; Ultimate Software Group represented 2.49% of fund assets.

Why "buyback fever" is gripping chip stocks

Steve Barwikowski – November 7, 2018

"I've been seeing an unprecedented volume of stock buybacks among semiconductor companies—and at well-below-market multiples," says Steve Barwikowski, portfolio manager of Fidelity^® Select Semiconductors Portfolio (FSELX).

Barwikowski has taken note of what he describes as "buyback fever" because, in his view, "it tends to be a value creator."

The latest example, Barwikowski notes, is Qualcomm, among the fund's largest holdings and an overweighted position relative to the fund's benchmark index as of September 30. In late July, the company authorized a $30 billion buyback, or about a third of its shares outstanding, after its failed acquisition of NXP Semiconductors, a sizable fund holding.

Meanwhile, NXP announced a $5 billion buyback authorization, about 15% of its shares outstanding, the same day as Qualcomm's announcement.

Barwikowski adds that in April, Broadcom made plans for a buyback of up to $12 billion, or roughly 11% of its shares. It remains effective until the end of 2019, according to Barwikowski, adding that Broadcom is the fund's second-largest holding after he added to it in July.

While Qualcomm and NXP approved buybacks after scrapping a plan to merge, in other cases, he says, buybacks allow companies to return value to shareholders after repatriating offshore cash, or to shift away from a "growth at any cost" mentality.

Learn more about this manager and his fund
Steve Barwikowski manages Fidelity^® Select Semiconductors Portfolio, which held securities mentioned in this article on September 30, 2018. As of the end of the third quarter, Qualcomm composed 7.65% of fund assets; NXP Semiconductors composed 4.94% of fund assets; Broadcom composed 9.88% of fund assets.